While 2022 began with stock prices at record highs, benchmark indexes show we're currently in a bear market. That's defined as a 20% decline in equity markets off the most recent all-time high.
Many investors are nervous about buying stocks under current conditions, as even a more recent rally doesn't mean we're leaving bear market territory. But you shouldn't be concerned about putting your money on the line.
In fact, there are three reasons why a bear market is the perfect time to buy more stock.
1. You can buy good stocks at a discount
A market downturn isn't something to be afraid of. It's a natural part of the economic cycle. In fact, skilled investors often look forward to this phase.
That's because it presents the opportunity to get a discount on high-quality stocks that see their share prices fall just because of the broader market conditions, rather than because of problems with the company itself.
Rather than pulling back on investing now, treat this as a chance to take advantage of bargain prices and either keep to your regular buying schedule or increase the investments you make.
2. Steady investing rather than trying to time the market has a proven track record of success
While you may be tempted to pause your investments until you can buy at the rock bottom, this isn't a good idea. Over time, buying consistently and holding for the long term has proven to be the most successful wealth-building strategy rather than trying to time the market.
Why is that the case?
Recoveries can happen quicker than anyone expects. And people often react too late. Unfortunately, if you miss the market's best days, you could be out tens of thousands of dollars.
For example, $10,000 invested in an S&P 500 index from Jan. 1, 1980, would have turned into $697,421 -- if you had kept the money invested on all days. But if you missed just the five best days, you would have just $432,411.
The price of a missed rally isn't worth paying, so keep investing even in a bear market so your money will definitely be where it needs to when things turn around.
3. It's always the right time to start building wealth
Finally, the last big reason why you should invest consistently over time -- even during downturns -- is because it's never a bad idea to buy solid assets that will perform well over the long term.
High-quality companies may see their share price fall temporarily, but they will keep growing and end up making you richer in the end. That's why no investor who owned an S&P 500 index fund for a period of 20 or more years would have ever lost money on their investment, no matter how poorly timed their investments. Investing in American businesses pays off.
So rather than being discouraged about this down market, you should just stay the course -- or increase your investing. It's exactly the right time to set yourself up for the chance to earn solid returns year after year by getting your money into the market where it can start working for you.